Feds arrest 14 members of ‘transnational criminal network’ accused of stealing $30 million in COVID-19 relief funds and small business loans — here’s how big crisis profiteering is in America

A major fraud ring uncovered

Fox 11 reported that Vahe Margaryan, a.k.a. “William McGrayan,” 42, was the brains of the fraud ring that applied for $47 million in federal funds and managed to get approved for $30 million. He and his co-conspirators allegedly made false documents, including fake bank statements and tax returns, for sham companies that supposedly needed the money.

Some of the charges the suspects face are conspiracy to defraud the government, wire fraud, bank fraud, and money laundering conspiracy.

“Some of the money was spent on homes and luxury goods, the rest was wired to Armenia, making it harder for the U.S. to trace … Most were born in Armenia, but have become naturalized here in the U.S.,” said Fox 11 reporter Matt Finn.

The press release says law enforcement seized about $20,000 in cash, two money-counting machines, paper cash bands or currency straps in denominations of $2,000 and $10,000, multiple cell phones, multiple laptops, two loaded semi-automatic 9mm handguns, and boxes of 9mm ammunition.

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Crisis profiteering in America

Crisis profiteering is the concept of making money from a crisis situation in an unethical or illegal manner. And it can take on different forms.

In some cases, it can mean exploiting consumers through price gouging. In the case above, it means stealing funds that were earmarked to help struggling consumers and businesses through a major crisis.

As The New York Times reported, lawmakers approved stimulus bills during the pandemic that resulted in roughly $5 trillion of dollars in funding — the largest flood of federal money into the economy in recorded history. An estimated $349 billion went into the Economic Injury Disaster Loan program, while $835 billion went into the Paycheck Protection Program.

The problem is that lawmakers didn't impose strict requirements for small business aid, allowing it to benefit some companies that didn't need a financial lifeline at the time. Worse yet, funding was so rushed that lawmakers didn't have ample time to put adequate fraud measures in place.

In June of 2023, the Small Business Administration's Office of Inspector General released a report estimating it gave out more than $200 billion in potentially fraudulent pandemic relief funds, including EIDL and PPP loans. All told, that would mean that 17% of all COVID-19 EIDL and PPP funds were distributed to potentially fraudulent actors.

And this isn't the first time this sort of thing has happened. The U.S. Government Accountability Office said that improper and fraudulent relief payments following Hurricanes Rita and Katrina are estimated at $600 million to $1.4 billion out of the total $6 billion in payments made through the Individuals and Households Program (IHP) program.

The same occurred in the post-9/11 days. Disaster relief funds were made available to New York City residents and businesses impacted by the attack. But relaxed requirements on FEMA's part "may have increased the likelihood of fraud in the Individual and Family Grant Program," said the Government Accountability Office. Similarly, 2.6% of the $1.6 billion disbursed after Hurricane Sandy may have been "improper or fraudulent."

The problem, of course, is that the more federal relief funds that are lost to fraud, the more money it costs taxpayers. Overall, the federal government loses $233 billion–$521 billion annually to fraud, based on data from 2018-2022.

The challenge is that in situations like the pandemic, major hurricanes, and events like 9/11, time is of the essence. Relief dollars often need to be disbursed quickly, so there’s not ample time to put guardrails in place to prevent fraud.

What the government can try to do, though, is be proactive in identifying those who took advantage of the crisis. While there may not be a 100% recovery rate for stolen funds, the more money the government can recoup, the better.

Anyone with information about fraud involving COVID-19 can report it by calling the National Center for Disaster Fraud (NCDF) Hotline at (866) 720-5721 or via the NCDF Web Complaint Form.